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2014 (12) TMI 560 - AT - Income TaxTransfer pricing adjustment – AMP expenses disallowed – Commission on sales, sales discount and sales promotion expenses need to be excluded from the AMP expenses or not – Held that:- The assessee incurred an expenditure of ₹ 12,39,19,327 - As per the assessee’s claim it was 4.46% of the sales - the TPO considering the 6 companies was of the view that the expenditure was in excess of the bright line by 1.87% which was considered to be for promotion of brand/trade name which was owned by the AE for which suitable the assessee was required to be compensated by the AE, accordingly a markup of 15% was applied - This resulted in an adjustment of ₹ 8,27,61,669/-. The action was upheld by the DRP – as decided in LG Electronics India Pvt. Ltd., Versus ACIT, Circle-3, Noida [2014 (12) TMI 437 - ITAT DELHI] the matter is to be remitted back to the TPO to pass a speaking order in accordance with law taking into consideration the principles laid down by the Special Bench in L.G. Electronics case – Decided in favour of assessee. Determination of ALP – International transaction of payment of Royalty on exports made to AE – Held that:- As decided in M/s Hero MotoCorp Limited Versus Additional Commissioner of Income tax [2013 (9) TMI 796 - ITAT DELHI] - the payment of royalty and the export commission are for two different purposes - the motorcycles which were exported by the assessee, were manufactured by using the technical know-how provided by HMCL under the technical know-how agreement - Therefore, royalty is payable on such manufacturing of goods - the export sale value was more than the domestic sale rate and the assessee has given a detailed working, which is enclosed with this order in the form of Annexure-I - the assessee has reduced the export commission - by export to the AE of Honda Japan, the assessee has been benefited and was not at a loss - The further finding of the TPO that the position of the assessee company with regard to export was that of a contract manufacturer is without any basis and in fact contrary to the facts on record - thus, there is no justification for disallowance of the royalty on the export – thus, the order of the TPO is directed to consider the claim of the assessee that the Agreement entered into by the assessee with the AE is similar to the Agreement entered into by the sister concern with the AE in as much as the terms and conditions impacting the issue are materially similar – Decided in favour of assessee. Corporate Tax matters – Royalty amount and technical assistance fee disallowed – Held that:- as decided in assessee’s own case for the earlier assessment year, it has been held that the DRP refused to interfere on the reasoning that the issue was still alive as a result thereof the relief granted in appeal in 2007-08 assessment year by the First Appellate Authority was not followed – in assessee’s own case it has been held that the comparative clauses based on the agreement in the case of the assessee and its sister concern were pari materia and consequently the payments were revenue in nature – Decided in favour of assessee. Export commission paid to M/s Honda Motor Co. Ltd. of Japan disallowed u/s 40(a)(i) – TDS to be deducted on royalty/fee for technical service u/s 195 or not – Held that:- as decided in assessee’s own case for the earlier assessment year, it has been held that the technical collaboration agreement are pari materia in the case of the assessee, the export commission was neither royalty nor fees for technical services and as such the assessee was not required to deduct tax at source payment of export fee and thus once the assessee was not required to deduct the tax at source the occasion to consider failure to deduct the same does not arise - the export commission has been paid for the business purposes of the assessee – the additions made u/s 40(a)(i) is set aside – Decided in favour of assessee.
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